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The two most frequently asked questions by investors are:
- What investment should I buy?
- Is now the right time to buy it?
Most people want to know how to spot the right investment at the right time, because they believe that is the key to successful investing. Let me tell you that is far from the truth: even if you could get the answers to those questions right, you would only have a 50% chance to make your investment successful. Let me explain.
There are two key influencers that can lead to the success or failure of any investment:
- External factors: these are the markets and investment performance in general. For example:
- The likely performance of that particular investment over time;
- Whether that market will go up or down, and when it will change from one direction to another.
- Internal factors: these are the investor’s own preference, experience and capacity. For example:
- Which investment you have more affinity with and have a track record of making good money in;
- What capacity you have to hold on to an investment during bad times;
- What tax advantages do you have which can help manage cash flow;
- What level of risk you can tolerate without tending to make panic decisions.
When we are looking at any particular Property Investment UK, we can’t simply look at the charts or research reports to decide what to invest and when to invest, we need to look at ourselves and find out what works for us as an individual.
Let’s look at a few examples to demonstrate my viewpoint here. These can show you why investment theories often don’t work in real life because they are an analysis of the external factors, and investors can usually make or break these theories themselves due to their individual differences (i.e. internal factors).
Example 1: Pick the best investment at the time.
Most investment advisors I have seen make an assumption that if the investment performs well, then any investor can definitely make good money out of it. In other words, the external factors alone determine the return.
I beg to differ. Consider these for example:
- Have you ever heard of an instance where two property investors bought identical properties side by side in the same street at the same time? One makes good money in rent with a good tenant and sells it at a good profit later; the other has much lower rent with a bad tenant and sells it at a loss later. They can be both using the same property management agent, the same selling agent, the same bank for finance, and getting the same advice from the same investment advisor.
- You may have also seen share investors who bought the same shares at the same time, one is forced to sell theirs at a loss due to personal circumstances and the other sells them for a profit at a better time.
- I have even seen the same builder building 5 identical houses side by side for 5 investors. One took 6 months longer to build than the other 4, and he ended up having to sell it at the wrong time due to personal cash flow pressures whereas others are doing much better financially.
What is the sole difference in the above cases? The investors themselves (i.e. the internal factors).
Over the years I have reviewed the financial positions of a few thousand investors personally. When people ask me what investment they should get into at any particular moment, they expect me to compare shares, properties, and other asset classes to advise them how to allocate their money.
My answer to them is to always ask them to go back over their track record first. I would ask them to list down all the investments they have ever made: cash, shares, options, futures, properties, property development, property renovation, etc. and ask them to tell me which one made them the most money and which one didn’t. Then I suggest to them to stick to the winners and cut the losers. In other words, I tell them to invest more in what has made them good money in the past and stop investing in what has not made them any money in the past (assuming their money will get a 5% return per year sitting in the bank, they need to at least beat that when doing the comparison).
If you take time to do that exercise for yourself, you will very quickly discover your favourite investment to invest in, so that you can concentrate your resources on getting the best return rather than allocating any of them to the losers.
You may ask for my rationale in choosing investments this way rather than looking at the theories of diversification or portfolio management, like most others do. I simply believe the law of nature governs many things beyond our scientific understanding; and it is not smart to go against the law of nature.
For example, have you ever noticed that sardines swim together in the ocean? And similarly so do the sharks. In a natural forest, similar trees grow together too. This is the idea that similar things attract each other as they have affinity with each other.
You can look around at the people you know. The people you like to spend more time with are probably people who are in some ways similar to you.